Received this in an email this morning:

America First 2008
Update


"I am for free trade," Ron Paul on the Lawrence Kudlow show, November 8, 2007.

Ron Paul and his supporters state that Ron Paul is not for free trade and has voted against free trade is a deception of trying to avoid the issues raised by free trade: the massive loss of American manufacturing jobs, the enormous free trade balance of trade deficit, the enormous purchases of U.S. securities by the Chinese and the meltdown of the U.S. dollar.

It is true that Ron Paul has voted against Free Trade agreements, but the reasons he has always given are that these agreements impinge on the sovereignty of the United States, not that free trade is inherently destructive. On the Kudlow show, he clearly embraces Free Trade.

His interview with Laurence Kudlow has been brought on by the significant downturn in the dollar. Ron Paul blames this on the policy of the Federal Reserve and inflation. But just before Ron Paul appeared Kudlow showed a chart saying inflation is low, around 2% and that inflation is also low in Europe, also around 2%. No matter what the Federal Reserve might do, it is not going to cause massive inflation.

Here are recent inflation rates.

Year
Ave

2007
-+2%

2006
3.24%

2005
3.39%

2004
2.68%

2003
2.27%

2002
1.59%

2001
2.83%

But here is the dramatic drop of the dollar. This drop is not caused by inflation as Ron Paul insists. The time period is short and there has been no massive inflation that would cause such a dramatic drop in the dollar. What has caused the drop in the dollar is the continuing outflow of dollars due to foreign trade deficits.

Even the economic theories of Milton Friedman state that as a country builds a trade deficit, the value of that currency declines. This decline is suppose to be slow and even in a world of unfixed currency rates. However, the Chinese have pegged their currency, it does not rise and therefore the drop in the dollar will be a sudden crash. As the dollar losses its status as the world's reserve currency.

When Ron Paul was asked directly by Lawrence Kudlow, 'What would you do?' Ron Paul's answer was an indecipherable statement. Paul said he would let private companies or banks issue currency and have the private currencies compete against the government currency. Ron Paul had jumped the shark into the looney bin of libertarian economics.

This is a trillion dollar economy.

Much of Ron Paul's and the libertarian's criticism of the Federal Reserve and the need for a gold standard is true, but stating that the solution to the Federal Reserve's problems is letting Wal-Mart print Wal-Mart Bucks is absurd. Gold standard, yes. Wal-Mart bucks, no.

Lawrence Kudlow and the other panelists are devoted free traders, so no mention of China or the balance of trade deficit emerged in the discussion. Apparently, owing billions to the Chinese, or is it trillions, does not affect the value of the dollar.

Now, free trade, balance of payments deficits are abstractions that are incomprehensible to the average person. But the price of gas is not. As the dollar depreciates, and foreign governments move out of the dollar, the price of gas will simply continue to rise. When gas hits $5, $8 per gallon, the US public will know something is wrong. Ron Paul is right, the currency will collapse, but the cause is not inflation and the Federal Reserve, it is free trade and the outsourcing of U.S. Jobs. One would think that Ron Paul would see that, but libertarianism is an ideology of free trade and free markets, that describes how things should be, not how things actually are, and how economies actually work.

Lou Dobbs and Pat Buchanan have a better grasp on what is killing the American economy: Free Trade.

"Free trade is the serial killer of American manufacturing and the Trojan Horse of World Government. It is the primrose path to the loss of economic independence and national sovereignty. Free trade is a bright shining lie. -- Where the Right Went Wrong, Patrick Buchanan

Here is Pat Buchanan's latest column on free trade, which can be found here. http://buchanan.org/blog/?p=880

PJB: Sinking Currency, Sinking Country
by Patrick J. Buchanan

The euro, worth 83 cents in the early George W. Bush years, is at $1.45.

The British pound is back up over $2, the highest level since the Carter era. The Canadian dollar, which used to be worth 65 cents, is worth more than the U.S. dollar for the first time in half a century.

Oil is over $90 a barrel. Gold, down to $260 an ounce not so long ago, has hit $800.

Have gold, silver, oil, the euro, the pound and the Canadian dollar all suddenly soared in value in just a few years?

Nope. The dollar has plummeted in value, more so in Bush's term than during any comparable period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment of the American dollar.

Is it all Bush's fault? Nope.

The dollar is plunging because America has been living beyond her means, borrowing $2 billion a day from foreign nations to maintain her standard of living and to sustain the American Imperium.

The prime suspect in the death of the dollar is the massive trade deficits America has run up, some $5 trillion in total since the passage of NAFTA and the creation of the World Trade Organization in 1994.

In 2006, that U.S. trade deficit hit $764 billion. The current account deficit, which includes the trade deficit, plus the net outflow of interest, dividends, capital gains and foreign aid, hit $857 billion, 6.5 percent of GDP. As some of us have been writing for years, such deficits are unsustainable and must lead to a decline of the dollar.

A sinking dollar means a poorer nation, and a sinking currency has historically been the mark of a sinking country. And a superpower with a sinking currency is a contradiction in terms.

What does this mean for America and Americans?

As nations realize that the dollars they are being paid for their products cannot buy in the world markets what they once did, they will demand more dollars for those goods. This will mean rising prices for the imports on which America has become more dependent than we have been since before the Civil War.

U.S. tourists traveling to the countries whence their ancestors came will find that the money they saved up does not go as far as they thought.

U.S. soldiers stationed overseas will find the cost of rent, gasoline, food, clothing and dining out takes larger and larger bites out of their paychecks. The people those U.S. soldiers defend will be demanding more and more of their money.

U.S. diplomats stationed overseas, students and businessmen are already facing tougher times.

U.S. foreign aid does not go as far as it did. And there is an element of comedy in seeing the United States going to Beijing to borrow dollars, thus putting our children deeper in debt, to send still more foreign aid to African despots who routinely vote the Chinese line at the United Nations.

The Chinese, whose currency is tied to the dollar, and Japan will continue, as long as they can, to keep their currencies low against the dollar. For the Asians think long term, and their goals are strategic.

China - growing at 10 percent a year for two decades and now growing at close to 12 percent - is willing to take losses in the value of the dollars it holds to keep the U.S. technology, factories and jobs pouring in, as their exports capture America's markets from U.S. producers.

The Japanese will take some loss in the value of their dollar hoard to take down Chrysler, Ford and GM, and capture the U.S. auto market as they captured our TV, camera and computer chip markets.

Asians understand that what is important is not who consumes the apples, but who owns the orchard.

Other nations that have kept cash reserves in U.S. Treasury bonds and T-bills are watching the value of these assets sink. Not fools, they will begin, as many already have, to divest and diversify, taking in fewer dollars and more euros and yen. As more nations abandon the dollar, its decline will continue.

The oil-producing and exporting nations, with trade surpluses, like China, have also begun to take the stash of dollars they have and stuff them into sovereign wealth funds, and use these immense and growing funds to buy up real assets in the United States - investment banks and American companies.

Nor is there any end in sight to the sinking of the dollar. For, as foreigners demand more dollars for the oil and goods they sell us, the trade deficit will not fall. And as the U.S. government prints more and more dollars to cover the budget deficits that stretch out - with the coming retirement of the baby boomers - all the way to the horizon, the value of the dollar will fall. And as Ben Bernanke at the Fed tries to keep interest rates low, to keep the U.S. economy from sputtering out in the credit crunch, the value of the dollar will fall.

The chickens of free trade are coming home to roost.

Perhaps, Ron Paul might read Pat Buchanan and watch the Lou Dobbs show a few times. Right now, he is a libertarian ideologue whose economics are not based in any known economic reality of the effects of foreign trade and foreign trade deficits.

Paul Streitz

www.americafirst2008.com

amfirst@optonline.net